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Miley Cyrus And The Future Of Disintermediation

Miley Cyrus, the pop starlet who hosted MTV’s "Video Music Awards" on Sunday, surprised the world when she announced she had produced a new album independent of her record label and is making it available online for free.

Image of Miley Cyrus by Tyrone Lebon.

At first glance the new album, titled Dead Petz and reportedly produced at a cost of just $50,000, seems like one more act in the ongoing psychodrama known as the disintermediation of the music industry.

Popular artists are bypassing traditional media platforms across the entertainment spectrum. Notable examples include Stephen King’s experiment with self-publishing and the emergence of YouTube stars who bypassed TV and movie studios on their way to becoming global sensations.

What has escaped notice, however, is that instead of huffing and puffing in anger, Cyrus’s label, RCA Records, issued a statement supporting “Miley’s unique musical vision.”

A number of subtleties in this example bear discussing, but the most important is that RCA is allowing Cyrus to go her own way on this one project, trusting that it will find ways to offset the opportunity cost of not getting revenue from this album. RCA did not respond to a request for comment.

Another way of putting this: technology giveth and technology taketh away. Since the turn of the twentieth century, technology has put artistic and economic power in the hands of the owners of the means of production: movie and recording studios and media and publishing companies. One hundred years later, technology is turning the tables.

For the most part, the entertainment industry has tried to survive using rear-guard actions, such as suing internet file sharing outfit Napster out of recognizable existence and implementing digital rights management technologies.

Try as they might, however, industry giants will never sever the new direct relationship between artists and their fans—that relationship has changed forever.

But that doesn’t mean companies like RCA are doomed. Technology will also allow them to create value for their artists in new ways—ways that the artists themselves don’t have the means to do on their own.

For example, digital publishers can use cloud and data analytics to discover affinities between different artists they handle, even matching pop stars from different ends of the earth, allowing their stars to build relationships with fans of other artists.

“This will create targeted and personalized experiences for consumers, and for the artist, a better targeted reach with social abilities,” says Harish Venkat, an Oracle group vice president.

The emergence of cloud computing isn’t just a boon to YouTube, but to companies like RCA as well.

In the past, audiences needed to be large enough for entertainment companies to justify the investment in distribution. Now, though, niches can be more effectively and profitably served.

Various digital technologies can deepen the relationship between diehard fans without sacrificing or alienating more casual mainstream audiences. It’s as true in most businesses as it is in the music business.

Cloud, social, mobile, analytics, and other digital technologies can also help record labels discover needles in haystacks.

“It’s now cost-effective to look longer and in smaller venues for that niche audience who will love that particular artist. Not just like, but love,” says Paul Sonderegger, big data strategist at Oracle. “Labels will have to retool themselves to be finders of ardent fans. That’s about looking under many more, smaller rocks.”

Record labels, movie studios, and their ilk also have more expertise in finding global audiences. “You’re going to most likely need a label with global reach to finance all the rocks you need to look under to find another 'Gangnam Style,'” Sonderegger says.

Now to those subtleties around the Cyrus-RCA relationship: Cyrus has a multi-album contract with the label, and according to an article in The New York Times, Dead Petz doesn’t count toward her fulfillment of that obligation.

So as far as RCA is concerned, the new album gives its star more visibility and makes her even more marketable; the only things RCA loses in the bargain are the possible revenues from that album and exclusivity over her creative output.

There isn’t a one-size-fits-all business model alteration that will shield established businesses from the paparazzi of disintermediation.

However, incumbents can start by exploring how new digital technologies can help them redefine their relationships with customers, suppliers, and partners.

Losing control over one aspect of a customer relationship might not feel good, but it beats the alternative, which is not having the customer relationship at all.